In a recent thread, which summarized various U.S. portfolio disasters over the last century, the suggestion was made that "time in the market" was the best hedge against portfolio disasters. In other words, if investors can just have the fortitude to ride out the storm, and the patience to hold on for decades, all will end well. In this post, we test this proposition for various stock/bond mixes over 30-year holding periods in both the U.S. and U.K. markets from 1825-2017.

U.S. Portfolios, 1871-2017
For U.S. investors, a glance at the chart below indicates that, yes, for nearly all 30-year holding periods since 1871, time in the market was fairly consistently rewarded. Short-term portfolio disasters — such as the World War I Inflation Shock, the Great Depression, and the Oil and Inflation Shocks of the 1970s — were all generally smoothed over by the blessing of time.

U.K. Portfolios, 1825-2017
For U.K. investors over their longer history, however, 30-year holding periods were not always rewarded (chart below) — even though their average portfolio returns over nearly two centuries were almost identical to the U.S. above. After a glorious run of portfolio returns in the late 1800s, the heyday of the British Empire, things gradually went downhill for U.K. investors, culminating in the first truly global financial crisis in 1914 on the eve of World War I.

Eventually, markets recovered, but all U.K. portfolios in the 1920-21 period saw 30-year returns of <1% real.

Discussion: This brief study reinforces how rare the consistency of U.S. portfolios returns have been in history — even compared with the U.K., arguably the second most successful market economy over the last two centuries. It's easy to get comforted by historical U.S. stock and bond returns, without perhaps realizing just how special they've been in the context of world history. For investors worldwide, time has healed many, but not nearly all, portfolio wounds.

Thoughts?

Last edited by SimpleGift on Fri Jul 20, 2018 4:34 am, edited 3 times in total.

Such was the scale of the global financial crisis in 1914 that many stock markets around the world, including the all-powerful London Stock Exchange, were forced to close and remained so for months. The U.K. government had to provide undreamt-of levels of liquidity to support the financial markets. Loss of faith in the currency was widespread, as people rushed to exchange paper notes into gold.

Crowds gather in Throgmorton Street near the London Stock Exchange, following its closing

On the eve of World War I, London as a financial center was unchallenged in power, wealth and reach. By the end of the war, it had ceded that position to Wall Street in the U.S., which had weathered the crisis in much better shape.

You also need to consider what happened in the years that created the low returns in the UK. The expropriation of private firms for public use after WWII surely had a large impact as well as the impact of WWII versus the US where some expropriation occurred during WWI but was reversed in the 1920s. This not only had a direct impact but the fear of this led to investors demanding a higher expropriation risk premium. In a CFA conference proceeding, a speaker stated that EM on average had outperformed developed markets over time if you excluded those markets that had expropriation.

Being a young guy (24 years old) I do not expect to
take any long term losses (I have the time to wait it out).
Now, the portfolio might take a short term paper loss.
But over the course of 50 to 70 years I think my portfolio
will do extremely good...

It was interesting to learn as well that the New York Stock Exchange also closed its doors from July to December 1914 (photo below) — along with every other regional exchange in the U.S. and most major bourses around the world.

Business Insider wrote:A key vulnerability in the U.S. was the threat that..."foreigners owned more than $4 billion U.S. railroad stocks and bonds at the outbreak of the Great War, with $3 billion of that in British hands. These securities were liquid assets and could be sold quickly on the NYSE. Under the gold standard, foreign investors could then use their cash proceeds to acquire the precious metal from the American banking system." They could next ship it all back to London. The Bank of England had just experienced a run on gold and lost $52.5 million.

The world was much more financially interconnected and "globalized" in the early 1900s than I was fully aware.

It looks to me as if those with 30+ years of accumulation ahead of them should be at least 80% equity, if US history is a reliable guide. One always came out ahead at 80% if they held for 30 years. That's some support for the Vanguard target date funds for younger folks being 90% equity. And a suggestion that age in bonds is probably too conservative prior to age 35 or so.

Late in the accumulation phase and especially in decumulation is another matter altogether.

The U.K.'s stock history (along with similar instances in many other nations and time periods) reminds me why I'm glad to be a trend follower and at least have some kind of downside protection, even though my strategy is very 'biased' towards being long on equities.

“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

Besides the historical differences in 30-year portfolio returns between the U.S and the U.K. over the last two centuries, one other interesting aspect in researching this topic was the gradual decline in the strength of the British pound relative to the U.S. dollar over the study period (chart below).

The global financial crisis starting in the 1914-1918 World War I period appears to be the first crack in the financial armor of the British Empire, as it gradually ceded economic dominance to the U.S. over the 20th century.

Note: Chart shows number of U.S. dollars to one British pound.
Data source: FRED

Though the pound weakened significantly in the 20th century, it didn't seem to detract from U.K. stock returns over this period (see chart in OP). This may have been due to the increasing percentage of overseas earnings by U.K. companies, which are up to nearly 75% today. The weaker the pound, as I understand it, the more these overseas profits are worth to U.K. investors when converted back from dollars, euros or yen.

While 30 years would probably heal almost all market wounds, think of what you're saying. 30-40 years is pretty much a working career. You don't have the bulk of your savings invested at the BEGINNING of your career. You have your largest portfolio at the END of your career. If the market then had a major dump on the eve of your retirement and didn't recover until 30 years later... well, you're 80-90 by then.

If the market had its major event when you're 25 (and had maybe a $10-20K invested, not only do you have 30 years for it to recover, but your career earnings (which mostly hadn't occurred yet) would be invested while the market is going sideways.

This market history stuff is interesting in retrospect, but it isn't practical in terms of living through it.

While 30 years would probably heal almost all market wounds, think of what you're saying. 30-40 years is pretty much a working career. You don't have the bulk of your savings invested at the BEGINNING of your career. You have your largest portfolio at the END of your career. If the market then had a major dump on the eve of your retirement and didn't recover until 30 years later... well, you're 80-90 by then.

If the market had its major event when you're 25 (and had maybe a $10-20K invested, not only do you have 30 years for it to recover, but your career earnings (which mostly hadn't occurred yet) would be invested while the market is going sideways.

This market history stuff is interesting in retrospect, but it isn't practical in terms of living through it.

Your point is a good one. Just to add to it, a retiree who is making withdrawals from their portfolio doesn't have 30 years to wait for markets to recover.

And it's easy for us to look back and see that the markets did indeed recover. But we must not forget that (1) several stock markets never recovered (e.g. Russian stock market in 1917 and Chinese stock market in 1949) and (2) we have no guarantee that any market will ever recover from a future downturn.

“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

In a recent thread, which summarized various U.S. portfolio disasters over the last century, the suggestion was made that "time in the market" was the best hedge against portfolio disasters. In other words, if investors can just have the fortitude to ride out the storm, and the patience to hold on for decades, all will end well. In this post, we test this proposition for various stock/bond mixes over 30-year holding periods in both the U.S. and U.K. markets from 1825-2017.

U.S. Portfolios, 1871-2017
For U.S. investors, a glance at the chart below indicates that, yes, for nearly all 30-year holding periods since 1871, time in the market was fairly consistently rewarded. Short-term portfolio disasters — such as the World War I Inflation Shock, the Great Depression, and the Oil and Inflation Shocks of the 1970s — were all generally smoothed over by the blessing of time.

U.K. Portfolios, 1825-2017
For U.K. investors over their longer history, however, 30-year holding periods were not always rewarded (chart below) — even though their average portfolio returns over nearly two centuries were almost identical to the U.S. above. After a glorious run of portfolio returns in the late 1800s, the heyday of the British Empire, things gradually went downhill for U.K. investors, culminating in the first truly global financial crisis in 1914 on the eve of World War I.

Eventually, markets recovered, but all U.K. portfolios in the 1920-21 period saw 30-year returns of <1% real.

Discussion: This brief study reinforces how rare the consistency of U.S. portfolios returns have been in history — even compared with the U.K., arguably the second most successful market economy over the last two centuries. It's easy to get comforted by historical U.S. stock and bond returns, without perhaps realizing just how special they've been in the context of world history. For investors worldwide, time has healed many, but not nearly all, portfolio wounds.

Another good exercise, Todd, and especially a good reminder of past exuberance about an emerging market--in this case, the US at the turn of the 20th century. UK investors held investments in everything from railroads, canals, cattle farms in the West, to actual stock on the NYSE. British investors lost their shirts. Good example: numerous gigantic white-face cattle ranches were financed by the Brits in Wyoming and Colorado. The cattle--unlike the native bison--had no clue that they could use their head to push the snow off grass and hay and starved and froze on the hoof.

Not many people know that all the markets in the US closed for a period during WW I. We were very lucky to recover so quickly from 9/11. Had more connections at the NYSE and Depository Trust Co. downtown that keeps electronic records of stock holdings been destroyed, it could have taken much longer to get the markets operating again. DTC had multiple backups remotely, as did all the exchanges, but it would have taken much longer to get them all operating smoothly if circumstances had been worse. We simply don't know all the vulnerabilities of our electronic world should a cyber war kick off.

I invested in the market from the late sixties thru the seventies in all that turmoil and know very few people who were able to stay in stocks. Money market funds were yielding in the high teens while stocks did nothing until it all turned around in 1981. I sold a fund I bought in 1970 at a loss in the early eighties. Hard to imagine what at 30-40 year recovery period looks like unless one starts investing at the outset and sticks with it. The sequence of returns would devastate anyone retiring as such a bear market began for sure.

When you start talking about communist countries or socialistic countries
& their stock markets all bet's are off.

What makes the USA so great is it's a capitalistic country which is
way different than other countries. Look at the USA markets
vs. the other countries markets...

So Chinese stocks are not tradable? So you think the socialist governments own the means of production in Scandinavian countries? Is Russia capitalist? Is capitalist Singapore more democratic than socialist Denmark? Your distinctions are meaningless.

Not many people know that all the markets in the US closed for a period during WW I. We were very lucky to recover so quickly from 9/11.

Not totally unrelated events, from what I understand. The primary reason that all the stock markets in the U.S. were closed for months during 1914 was to keep to foreign investors from selling their shares, exchanging their cash for gold and then shipping gold out of the country. The U.S. needed to keep all the gold it had on hand to ensure a healthy opening of the Federal Reserve system, which had just been created by Congress in December 1913.

Coming full circle to today, the Federal Reserve played a role in the fast recovery from 9/11 (by providing liquidity during the crisis) — and of course acted quickly to help stabilize the entire financial system during the 2008-09 crisis.

Not many people know that all the markets in the US closed for a period during WW I. We were very lucky to recover so quickly from 9/11.

Not totally unrelated events, from what I understand. The primary reason that all the stock markets in the U.S. were closed for months during 1914 was to keep to foreign investors from selling their shares, exchanging their cash for gold and then shipping gold out of the country. The U.S. needed to keep all the gold it had on hand to ensure a healthy opening of the Federal Reserve system, which had just been created by Congress in December 1913.

Coming full circle to today, the Federal Reserve played a role in the fast recovery from 9/11 (by providing liquidity during the crisis) — and of course acted quickly to help stabilize the entire financial system during the 2008-09 crisis.

The markets and policy makers are far more sophisticated than they were 80+ years ago. The downside of that is it allows us to take on more risk, debt/leverage, and you run the risk of getting past the point of no return.

Such was the scale of the global financial crisis in 1914 that many stock markets around the world, including the all-powerful London Stock Exchange, were forced to close and remained so for months. The U.K. government had to provide undreamt-of levels of liquidity to support the financial markets. Loss of faith in the currency was widespread, as people rushed to exchange paper notes into gold.

Crowds gather in Throgmorton Street near the London Stock Exchange, following its closing

On the eve of World War I, London as a financial center was unchallenged in power, wealth and reach. By the end of the war, it had ceded that position to Wall Street in the U.S., which had weathered the crisis in much better shape.

Market history demonstrates the enduring nature of
capitalism. Studying price charts going back to
1928/1929 (and before) capitalism has functioned very
favorably.

Having not invested in a communist or socialistic country
or market, I'am not a expert in investing in them or
knowing how tradeable they are. I do know that Warren
Buffett said he invested in China. He also stated that the
ownership of the company was highly regulated by the
communist party...

Another good exercise, Todd, and especially a good reminder of past exuberance about an emerging market--in this case, the US at the turn of the 20th century. UK investors held investments in everything from railroads, canals, cattle farms in the West, to actual stock on the NYSE. British investors lost their shirts. Good example: numerous gigantic white-face cattle ranches were financed by the Brits in Wyoming and Colorado. The cattle--unlike the native bison--had no clue that they could use their head to push the snow off grass and hay and starved and froze on the hoof.

Not many people know that all the markets in the US closed for a period during WW I. We were very lucky to recover so quickly from 9/11. Had more connections at the NYSE and Depository Trust Co. downtown that keeps electronic records of stock holdings been destroyed, it could have taken much longer to get the markets operating again. DTC had multiple backups remotely, as did all the exchanges, but it would have taken much longer to get them all operating smoothly if circumstances had been worse. We simply don't know all the vulnerabilities of our electronic world should a cyber war kick off.

I invested in the market from the late sixties thru the seventies in all that turmoil and know very few people who were able to stay in stocks. Money market funds were yielding in the high teens while stocks did nothing until it all turned around in 1981. I sold a fund I bought in 1970 at a loss in the early eighties. Hard to imagine what at 30-40 year recovery period looks like unless one starts investing at the outset and sticks with it. The sequence of returns would devastate anyone retiring as such a bear market began for sure.

We don't get to choose how old we'll be or when a 20-30 year sideways market will happen. The "hope and pray" strategy never sat well with me.

That is why I recommend to invest in real assets that produce cash flow.

Not many people know that all the markets in the US closed for a period during WW I. We were very lucky to recover so quickly from 9/11.

Not totally unrelated events, from what I understand. The primary reason that all the stock markets in the U.S. were closed for months during 1914 was to keep to foreign investors from selling their shares, exchanging their cash for gold and then shipping gold out of the country. The U.S. needed to keep all the gold it had on hand to ensure a healthy opening of the Federal Reserve system, which had just been created by Congress in December 1913.

Coming full circle to today, the Federal Reserve played a role in the fast recovery from 9/11 (by providing liquidity during the crisis) — and of course acted quickly to help stabilize the entire financial system during the 2008-09 crisis.

Yes, good point. In the panic of 1907 JP Morgan had to lock all the NY bankers in a room until they agreed to bail out the US gov. because we had no central bank. Any emerging market that closed its exchanges today to try to keep capital in the country would have no success. I lived/worked in downtown Manhattan and used to pass the Fed Res. bank on Maiden Lane where we store gold for all the foreign nations on my way to the gym. That vault, the second largest deposit after Ft. Knox, I think, is remarkable testimony to how the world assesses risk here vs. any other spot.

A block up the street is where all the shenanigans for financing the Union Pacific were carried out. In a historical lookback, it always seems like everything works out, markets stabilize, and no one should panic about any events. That's not what I saw happen after 9/11, however. The fear and panic were unbelievable. Just trying to make the point that it's very easy in good times to make the judgment that "I'm in the market for the long haul" and quite another to be rational through a market panic. Though I stick with my IPS, my experience and reading of market history leads me to be very impressed with the "optionality" of cash and short-term treasuries for the inevitable things that sail out of the mist. That constitutes one option that is more valuable than readily calculated by the usual metrics. Every time I see "why not 100% stocks," I remind myself of all the people that I know who misjudge their risk tolerance and sell at the bottom to people who have reserves to commit to stocks.

The question, of course, is who has 30 years to wait. We all use the assumption that right out of school we invest and then wait until retirement. Is that really realistic?
30 years ago a knew nothing, 20 years ago I thought I knew but was wrong, 10 years ago, I knew but it was too late! (I am 70)

That is why I recommend to invest in real assets that produce cash flow.

Such as?

Income-producing real estate (residential/commerical/self storage/agricultural/etc.). Fluctuations in value of the property/portfolio is a moot point and pretty irrelevant when you are generating a 10-15% cash flow.

That is why I recommend to invest in real assets that produce cash flow.

Such as?

Income-producing real estate (residential/commerical/self storage/agricultural/etc.). Fluctuations in value of the property/portfolio is a moot point and pretty irrelevant when you are generating a 10-15% cash flow.

It becomes pretty relevant if your property value crashes and also due to economic depression becomes untenanted so no cash flow.

We don't get to choose how old we'll be or when a 20-30 year sideways market will happen. The "hope and pray" strategy never sat well with me.

That is why I recommend to invest in real assets that produce cash flow.

Like I said before, this doesn't work for everyone. Where I live, most houses/apartments cost at least 200K and you can rent them out for maybe 700-800 per month so that's a negative cash flow. You certainly won't find any houses here for 100K that you can rent out for 900 per month.You really have to take into account that real estate is very location dependent. It's not general advice that you can give to everyone. Real estate is a lousy deal where I live.

That is why I recommend to invest in real assets that produce cash flow.

Such as?

Income-producing real estate (residential/commerical/self storage/agricultural/etc.). Fluctuations in value of the property/portfolio is a moot point and pretty irrelevant when you are generating a 10-15% cash flow.

It becomes pretty relevant if your property value crashes and also due to economic depression becomes untenanted so no cash flow.

Nope. Even if your vacancy drops from 98% to 94% on a recession, you are still cash flowing. Do you think your tenants just disappear and go live on the street? They crawl into a hole an die? What often happens is, people stop buying the SUVs, lattes, and doggy day care but they prioritize one of their basic needs, housing. It sounds like you've read a lot of sensationalist articles. If you are owner-occupying a property and can't afford the mortgage then the value might become important. I could care less about the value of an investment property that cash flows every month.
In the real world, investors who held their properties through '07-'09 are now very wealthy.

We don't get to choose how old we'll be or when a 20-30 year sideways market will happen. The "hope and pray" strategy never sat well with me.

That is why I recommend to invest in real assets that produce cash flow.

Like I said before, this doesn't work for everyone. Where I live, most houses/apartments cost at least 200K and you can rent them out for maybe 700-800 per month so that's a negative cash flow. You certainly won't find any houses here for 100K that you can rent out for 900 per month.You really have to take into account that real estate is very location dependent. It's not general advice that you can give to everyone. Real estate is a lousy deal where I live.

Nope. Even if your vacancy drops from 98% to 94% on a recession, you are still cash flowing. Do you think your tenants just disappear and go live on the street? They crawl into a hole an die? What often happens is, people stop buying the SUVs, lattes, and doggy day care but they prioritize one of their basic needs, housing. It sounds like you've read a lot of sensationalist articles. If you are owner-occupying a property and can't afford the mortgage then the value might become important. I could care less about the value of an investment property that cash flows every month.

Perhaps where you live, but where I live, which I think is more typical, what they do is stay right where they are, stop paying the rent, and dare you to evict them. Yay! 100% occupancy - too bad no rent. If they ever had an SUV, it's long been repossessed, and the closest they ever come to a latte when they use the restroom at Starbucks. In addition, the type of people you describe are not the type to pay $1000/month to live in a $100,000 house, or $2000 to live in a $200,000 one. To put it mildly, they are not often capital-constrained.

Nope. Even if your vacancy drops from 98% to 94% on a recession, you are still cash flowing. Do you think your tenants just disappear and go live on the street? They crawl into a hole an die? What often happens is, people stop buying the SUVs, lattes, and doggy day care but they prioritize one of their basic needs, housing. It sounds like you've read a lot of sensationalist articles. If you are owner-occupying a property and can't afford the mortgage then the value might become important. I could care less about the value of an investment property that cash flows every month.

Perhaps where you live, but where I live, which I think is more typical, what they do is stay right where they are, stop paying the rent, and dare you to evict them. Yay! 100% occupancy - too bad no rent. If they ever had an SUV, it's long been repossessed, and the closest they ever come to a latte when they use the restroom at Starbucks. In addition, the type of people you describe are not the type to pay $1000/month to live in a $100,000 house, or $2000 to live in a $200,000 one. To put it mildly, they are not often capital-constrained.

Invest in markets with job and population growth. Diversity of jobs. Invest in different markets. All of this helps. Investing where you happen to live may not be a wise strategy.

Another good exercise, Todd, and especially a good reminder of past exuberance about an emerging market--in this case, the US at the turn of the 20th century. UK investors held investments in everything from railroads, canals, cattle farms in the West, to actual stock on the NYSE. British investors lost their shirts. Good example: numerous gigantic white-face cattle ranches were financed by the Brits in Wyoming and Colorado. The cattle--unlike the native bison--had no clue that they could use their head to push the snow off grass and hay and starved and froze on the hoof.

Not many people know that all the markets in the US closed for a period during WW I. We were very lucky to recover so quickly from 9/11. Had more connections at the NYSE and Depository Trust Co. downtown that keeps electronic records of stock holdings been destroyed, it could have taken much longer to get the markets operating again. DTC had multiple backups remotely, as did all the exchanges, but it would have taken much longer to get them all operating smoothly if circumstances had been worse. We simply don't know all the vulnerabilities of our electronic world should a cyber war kick off.

I invested in the market from the late sixties thru the seventies in all that turmoil and know very few people who were able to stay in stocks. Money market funds were yielding in the high teens while stocks did nothing until it all turned around in 1981. I sold a fund I bought in 1970 at a loss in the early eighties. Hard to imagine what at 30-40 year recovery period looks like unless one starts investing at the outset and sticks with it. The sequence of returns would devastate anyone retiring as such a bear market began for sure.

We don't get to choose how old we'll be or when a 20-30 year sideways market will happen. The "hope and pray" strategy never sat well with me.

That is why I recommend to invest in real assets that produce cash flow.

I have no doubt that those who take the time to learn that business and manage it prudently can get respectable returns. Comparing an active investment like real estate to a generally passive one like index fund investing is apples and oranges. Most don't have the time or inclination to go into real estate.

Nope. Even if your vacancy drops from 98% to 94% on a recession, you are still cash flowing. Do you think your tenants just disappear and go live on the street? They crawl into a hole an die? What often happens is, people stop buying the SUVs, lattes, and doggy day care but they prioritize one of their basic needs, housing. It sounds like you've read a lot of sensationalist articles. If you are owner-occupying a property and can't afford the mortgage then the value might become important. I could care less about the value of an investment property that cash flows every month.

Perhaps where you live, but where I live, which I think is more typical, what they do is stay right where they are, stop paying the rent, and dare you to evict them. Yay! 100% occupancy - too bad no rent. If they ever had an SUV, it's long been repossessed, and the closest they ever come to a latte when they use the restroom at Starbucks. In addition, the type of people you describe are not the type to pay $1000/month to live in a $100,000 house, or $2000 to live in a $200,000 one. To put it mildly, they are not often capital-constrained.

Invest in markets with job and population growth. Diversity of jobs. Invest in different markets. All of this helps. Investing where you happen to live may not be a wise strategy.

Can you be more specific with regard to the areas you refer too? I know of many markets with with the "job and population growth. Diversity of jobs" that you recommend, but I am unaware of any where $200,000 houses routinely rent to "never miss a payment" tenants for $2000 a month. Maybe the shale oil wildcat areas or similar, but those are usually temporary situations.

Last edited by gmaynardkrebs on Sat Jul 21, 2018 1:52 pm, edited 2 times in total.

We don't get to choose how old we'll be or when a 20-30 year sideways market will happen. The "hope and pray" strategy never sat well with me.

That is why I recommend to invest in real assets that produce cash flow.

Like I said before, this doesn't work for everyone. Where I live, most houses/apartments cost at least 200K and you can rent them out for maybe 700-800 per month so that's a negative cash flow. You certainly won't find any houses here for 100K that you can rent out for 900 per month.You really have to take into account that real estate is very location dependent. It's not general advice that you can give to everyone. Real estate is a lousy deal where I live.

I don't own any real estate where I live right now.

Yeah but I live in Belgium. I don't really feel like buying a house on the other side of the globe in Michigan or wherever the good deals are.

Nope. Even if your vacancy drops from 98% to 94% on a recession, you are still cash flowing. Do you think your tenants just disappear and go live on the street? They crawl into a hole an die? What often happens is, people stop buying the SUVs, lattes, and doggy day care but they prioritize one of their basic needs, housing. It sounds like you've read a lot of sensationalist articles. If you are owner-occupying a property and can't afford the mortgage then the value might become important. I could care less about the value of an investment property that cash flows every month.

Perhaps where you live, but where I live, which I think is more typical, what they do is stay right where they are, stop paying the rent, and dare you to evict them. Yay! 100% occupancy - too bad no rent. If they ever had an SUV, it's long been repossessed, and the closest they ever come to a latte when they use the restroom at Starbucks. In addition, the type of people you describe are not the type to pay $1000/month to live in a $100,000 house, or $2000 to live in a $200,000 one. To put it mildly, they are not often capital-constrained.

Invest in markets with job and population growth. Diversity of jobs. Invest in different markets. All of this helps. Investing where you happen to live may not be a wise strategy.

Can you be more specific with regard to the areas you refer too? I know of many markets with with the "job and population growth. Diversity of jobs" that you recommend, but I am unaware of any where $200,000 houses routinely rent to "never miss a payment" tenants for $2000 a month. Maybe the shale oil wildcat areas or similar, but those are usually temporary situations.

I think WD means cash flow on the money down not the whole value of the property. So not as good as what you are suggesting, which doesn’t exist

We don't get to choose how old we'll be or when a 20-30 year sideways market will happen. The "hope and pray" strategy never sat well with me.

That is why I recommend to invest in real assets that produce cash flow.

Like I said before, this doesn't work for everyone. Where I live, most houses/apartments cost at least 200K and you can rent them out for maybe 700-800 per month so that's a negative cash flow. You certainly won't find any houses here for 100K that you can rent out for 900 per month.You really have to take into account that real estate is very location dependent. It's not general advice that you can give to everyone. Real estate is a lousy deal where I live.

I don't own any real estate where I live right now.

Yeah but I live in Belgium. I don't really feel like buying a house on the other side of the globe in Michigan or wherever the good deals are.

Come on. Detroit is known as the Bruxelles of the Midwest.

"In a time of universal deceit, telling the truth becomes a revolutionary act." - George Orwell |
There are many roads to doublin'. |
Original Vanguard Diehard

That is why I recommend to invest in real assets that produce cash flow.

Such as?

Income-producing real estate (residential/commerical/self storage/agricultural/etc.). Fluctuations in value of the property/portfolio is a moot point and pretty irrelevant when you are generating a 10-15% cash flow.

It becomes pretty relevant if your property value crashes and also due to economic depression becomes untenanted so no cash flow.

Nope. Even if your vacancy drops from 98% to 94% on a recession, you are still cash flowing. Do you think your tenants just disappear and go live on the street? They crawl into a hole an die? What often happens is, people stop buying the SUVs, lattes, and doggy day care but they prioritize one of their basic needs, housing. It sounds like you've read a lot of sensationalist articles. If you are owner-occupying a property and can't afford the mortgage then the value might become important. I could care less about the value of an investment property that cash flows every month.
In the real world, investors who held their properties through '07-'09 are now very wealthy.

NOI during recessions can and does go down, even in so-called "recession-resistant" housing. I know this is true in multifamily, even in the markets with the best population growth.

He goes into detail on statistics from DFW. Class C apartments -- which is supposed to be immune to recessions -- fared the worst, with average vacancy rate in the teens during the peak. People who are in really dire straights don't just keep paying the rent, they move in with family, or into a van down by the river.

Commercial properties generally have shorter loan terms, and must be refinanced every 5-12 years depending on the loan. If the refinancing falls during a period when NOI is lower, then the loan proceeds might not cover the old loan plus the required equity.

Now, maybe not all apartments went back to the bank, but that does happen. The lender will take back the property if it's not performing. Is every operator above average and can hold on through difficult times (rising supply, falling occupancies and rents)? Some who needed to refinance during this window of time had to either demand a cash call from investors (who were diluted), obtain expensive hard money financing or relinquish the property. Ian talks about sponsor track record (there are very few operators whose track record covers a full real estate cycle).

That's for multifamily. Office or retail tenants just close their businesses down if they hit hard times during a recession, so they are more sensitive to economic contractions.

While 30 years would probably heal almost all market wounds, think of what you're saying. 30-40 years is pretty much a working career. You don't have the bulk of your savings invested at the BEGINNING of your career. You have your largest portfolio at the END of your career. If the market then had a major dump on the eve of your retirement and didn't recover until 30 years later... well, you're 80-90 by then.

If the market had its major event when you're 25 (and had maybe a $10-20K invested, not only do you have 30 years for it to recover, but your career earnings (which mostly hadn't occurred yet) would be invested while the market is going sideways.

This market history stuff is interesting in retrospect, but it isn't practical in terms of living through it.

And living through the past 18 years has been interesting - and real - for many.

Wade Pfau wrote an article in 2016 looking at how retirees fared who retired in 2000 right as the dot.com bust happened and markets dropped 50%+ (much more for the technology sector to the tune of over 80%), then the 54.x% drop in 2008-09 to see what the 13 year secular bear market did to them and how they were doing in 2016, sixteen years into their retirement. He then compares it to other periods that have been less kind than the past 16-18 years.

Being a young guy (24 years old) I do not expect to
take any long term losses (I have the time to wait it out).
Now, the portfolio might take a short term paper loss.
But over the course of 50 to 70 years I think my portfolio
will do extremely good...

Being a young guy (24 years old) I do not expect to
take any long term losses (I have the time to wait it out).
Now, the portfolio might take a short term paper loss.
But over the course of 50 to 70 years I think my portfolio
will do extremely good...

Being a young guy (24 years old) I do not expect to
take any long term losses (I have the time to wait it out).
Now, the portfolio might take a short term paper loss.
But over the course of 50 to 70 years I think my portfolio
will do extremely good...

Wade Pfau wrote an article in 2016 looking at how retirees fared who retired in 2000 right as the dot.com bust happened and markets dropped 50%+ (much more for the technology sector to the tune of over 80%), then the 54.x% drop in 2008-09 to see what the 13 year secular bear market did to them and how they were doing in 2016, sixteen years into their retirement. He then compares it to other periods that have been less kind than the past 16-18 years.

We had a very active thread regarding that very issue earlier this year.

Retirees from the year 2000 who would have used the '4% rule' for withdrawals are in good shape these days. The first decade was certainly tough, but the last nine years would have been very good to 'them', and 'they' are on track to make it to the 30 year mark.

Interestingly, the year 2000 was the worst starting year for retirees since the 1970s.

“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

Wade Pfau wrote an article in 2016 looking at how retirees fared who retired in 2000 right as the dot.com bust happened and markets dropped 50%+ (much more for the technology sector to the tune of over 80%), then the 54.x% drop in 2008-09 to see what the 13 year secular bear market did to them and how they were doing in 2016, sixteen years into their retirement. He then compares it to other periods that have been less kind than the past 16-18 years.

We had a very active thread regarding that very issue earlier this year.

Retirees from the year 2000 who would have used the '4% rule' for withdrawals are in good shape these days. The first decade was certainly tough, but the last nine years would have been very good to 'them', and 'they' are on track to make it to the 30 year mark.

Interestingly, the year 2000 was the worst starting year for retirees since the 1970s.

That's a great thread! Not sure how I missed reading it back in January, but well done. Just about every issue was raised - including Japan (although I don't recall seeing a post or link showing the outcome of various Japanese investors since the peak, although I have read other articles about that). Even the power of working longer was raised in the thread you started. Anyway, it was well worth the read. Thanks for the link.

The academic paper and video about the power of working longer addresses the topic du jour - idea of returns not being so grand over the next decade - as well. Hence, off to an afternoon workshop I go...

"Everywhere is within walking distance if you have the time." ~ Steven Wright

We get it, real estate is superior to stocks and none of us on this forum are smart enough to figure out what you've figured out. You don't need to set a "bait" comment in every thread enticing people into the exact same arguments over and over again. The BiggerPockets forum should provide you with plenty of affirmation about how smart you are for investing in real estate.

We get it, real estate with leverage is superior to unleveraged stocks and none of us on this forum are smart enough to figure out what you've figured out. You don't need to set a "bait" comment in every thread enticing people into the exact same arguments over and over again. The BiggerPockets forum should provide you with plenty of affirmation about how smart you are for investing in real estate with leverage.